All business owners will have to exit their business either through retirement or undertaking a new endeavor. Some will leave it to a successor while others will sell. Regardless of what you choose to do, it is never too early to start planning.
Selling your business can be a complicated process. From how to sell to what to look for in a buyer, it can be a daunting task for a small business owner transitioning into another business or retirement. Here are five things to consider when selling your business.
1. Choose Your Preferred Type of Business Sale
There are a few different ways to sell your business, including an outright sale where a buyer purchases your business for the sale amount and ownership is transferred. A gradual sale is similar to having a mortgage and the sale is financed, providing a flexible option for transferring a business. Others do a lease agreement where the buyer and seller enter into a contract outlining the conditions and payments to have temporary rights to the business. An increasingly common trend are Employee Stock Ownership Plans (ESOPs), which enable employees to own part or all of the company they work for and makes succession planning easier.
2. Properly Value Your Business
In order to get a fair return for your business, you’ll first want to get a proper valuation. To get your business valued, you’ll need to get a certified appraiser who will conduct a valuation based on your preference. For example, some businesses will use an asset approach, which subtracts total business liabilities from the total value of all assets. Others will use a market approach that compares your business to other similar businesses that have recently sold.
3. Create an Exit Strategy
The transition period can be a volatile time for many small businesses. Having an orderly transition plan that includes supply chain considerations, financial obligations, and client or customer needs are important considerations to avoid a disruption in business. Depending on whether you leave your business to a successor or selling your business outright, your exit strategy might need to provide them with training and resources.
4. Find a Business Broker
As a small business owner, you have experience running a business, but are most likely not an expert at selling your business. That’s where a business broker comes in. Finding the right business broker, who ideally has experience in your local area and industry, can assist in selling your business. The International Business Brokers Association (IBBA) can help you find a business broker.
5. Prepare Estate Planning Financial and Legal Documents
To sell your business, you’ll need to have accurate financial documents from the past few years. You will also have to need to research the legal documents needed to sell a business in your area, which may include a will, healthcare directive, and power of attorney.
These steps emphasize the importance of keeping your business organized at all times. Make sure you keep updated financial records so you can be prepared to see your business when you are ready.
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